Gujarat BoardEnglish MediumSTD 11 CommerceEconomicsSupply5 Marks
Question
What is Supply? Explain different factors affecting supply.
✓
Answer
Introduction :
Generally stock and supply are same but in economics both are different.
To understand the concept of supply we need to know about production, stock and supply.
Meaning of Supply :
All the factors remaining constant, at a particular time, the willingness units and capacity of the firm to sell goods is called supply.
E.g. Suppose the producer has $1000$ units of goods $x$ but he is not ready to sell because there is a rumor that the price of goods $x$ will increases in future.
Similarly, if he is not ready to sell $500$ units at prevailing price than supply of goods $x$ is $500$ units.
If the producer wants to sell $1000$ units but stock is $500$ units then supply is $500$ units only.
It means that procedure has the stock of the goods to sell. In this case, $1000$ units of goods $x$ is stock.
If the procedure is not ready to sell any unit, the supply is zero.
In short, all factors remaining constant, at a particular price, at a particular time, the willingness and capacity of the firm to sell goods is called supply.
The supply of the goods can be less than or equal to the stock of the goods.
There is a difference between supply and sell.
The supply of goods is the probability of selling whereas selling is reality
The Factors Affecting Supply :
The factors affecting supply can be classified in to two. divisions:
Price of goods,
Factors other than Price.
Price of goods :
If all other factors remain constant and price of goods decreases, the supply contracts.
If the price increases, the supply also increases.
The change in prices of goods influences, the seller will reduce the stock and increases the supply to earn more he seller will place more orders with that supply earn more profit.
In this way. if the price Increases, increases, the seller will place more orders with that supply will increase.
Thus changes in prices affect the stock and production of goods and also influence supply in the final analysis.
Factors other than Price :
Even if prices remain constant, there are some factors that influence the supply of goods.
Cost of production factors :
Production affects supply most and production depends on cost of production.
If the price of commodity is constant but the factors of production vary in cost, supply is affected.
E.g. Interest paid on capital, rent paid on land decreases, the cost of production goes down and it becomes quite profitable for the producer.
Therefore, the production as well as supply increases.
Variation in cost of production affects supply of commodities remarkably.
If prices of commodities are constant but improvement of method of production reduces the cost of production and the producer will increases the supply of commodities to increase the profit.
On the contrary, if the prices of commodities are constant but if the cost of production increase on account of increase in wages or any other reasons, the producer will reduce the production and Increase the stock to reduce the risk of loss.
As a result, the supply will also be reduced.
Natural factors :
Natural factors also affect the supply of commodities.
e.g. Heavy rains famine, earthquake, cyclone etc.
These factors affect the agricultural production adversely and supply decreases.
On the contrary, favorable climate helps in increasing the production and supply.
Prices of substitutable $($Compatible$)$ Commodities :
Changes in prices of other substitutable commodities also affect the supply of particular commodities.
e.g. The price of bajra $($millet$)$ remains constant but if the prices of cotton increases, the farmer will reduce the production of bajra and supply of bajra will decreases while he will grow more cotton and increases the supply of cotton.
Transport facilities :
In any country, an if transport and communication facilities become cheap and easily available, commodities can be transported easily, rapidly and cheaply .
Therefore, supply increases but if transport facilities are not available easily, supply decreases.
Credit facilities / Facilities of loan :
If producers obtain credit facilities and loans at lower rates, they get necessary finance.
Thus, capital increases and with increases in production, supply also increases.
But if the producers get finances at higher rate of interest, the cost of production increases and supply of production decreases.
Government policy :
The policy of government also influences the supply of commodities.
If government levied more taxes on production or sale of commodities, the production suffers and supply decreases.
On the other hand, if the government announces various reliefs in taxes or subsidies for production units, production increases, resulting in the increase of supply also.
Political circumstances :
Political situation in the country also influences supply.
If there are instability, terrorism, unrest or chaos in the country, producer experience the feelings of fear and insecurity and therefore, production and supply decreases.
On the contrary, if peace, security and Progress prevail in the country, production and supply increases.
Rumor :
Rumours regarding price of commodities in the market or government policies affect the supply of the commodities.
If there is a rumour about the rise of price in future, the producer restrict will increases the stock and supply will be reduced at the current rate.
If there is a remour about restrictions on certain commodities, supply will decreases on a large scale.
The number of firms and objects :
A change in number of firms or changes in their objectives affect supply in the long run.
If number of firms increases or the size of firms expands it results in larger supply of commodities.
On the contrary, if number of firm decreases, production becomes unprofitable and supply decreases in the long run.
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